Hi,
I found something rather interesting today. Thought I could search for answers here at the Austrian forum. Here is the piece:
"The Austrians entered the fray under with a cannonade by Ludwig von Mises. In a famous 1920 article "Economic Calculation in the Socialist Commonwealth", Mises went on the attack - arguing that pricing systems in socialist economies were necessarily deficient because if government owned the means of production, then no prices could be obtained for capital goods as they were merely internal transfers of goods in a Socialist system and not "objects of exchange" (unlike final goods) - thus they were unpriced and hence the system would be necessarily inefficient.
But Mises's argument was erroneously construed - as H.D. Dickinson (1933) was quick to point out. After all, as Barone and Taylor had shown, if we see the world as a system of Walrasian equations which need "solutions", there is no issue about not being able to price internal products."
Source: http://homepage.newschool.edu/het/essays/paretian/social.htm
So what is a 'Walrasian equation' and how is it possible to find prices by solving the equation?
Regards!
Rooster, that's more like the knowledge problem which Hayek said the Centrally Planner would be faced with, no?
Liberty student, do you mean that rational allocation of capital resources is possible if consumer goods are priced by genuine market bidding?
Prashanth Perumal: Rooster, that's more like the knowledge problem which Hayek said the Centrally Planner would be faced with, no?
Yes, I don't think you can really separate it from the "calculation problem" -- that's what you're using the knowledge for.
Prashanth Perumal: Liberty student, do you mean that rational allocation of capital resources is possible if consumer goods are priced by genuine market bidding?
No. I meant that, you're assuming a command economy where finished goods prices are set by the consumer, and not established by quota or allocation from the central planners.
If you find something evil that wobbles, push it. - Gary North
Nirgraham, Oscar Lange actually agreed to the fact that consumers' good would be set prices on a trial and error basis, and thus the market clearing price would be determined. So, it is not that there is complete lack of pricing system in a centrally planned economy. Look here for instance:
It is true that retailers, given the stock of a certain type of good, can clear the market by adjusting the prices of that good upward or downward. But, as Mises pointed out in his original 1920 article, consumers goods are not the real problem. Consumers, these "market socialists" are postulating, are free to express their values by using money they had earned on a range of consumers' goods. Even the labor market — at least in principle — can be treated as a market with self-owning suppliers who are free to accept or reject bids for their labor and to move to different occupations. The real problem, as Mises has insisted from the beginning, is in all the intermediate markets for land and capital goods.(source: http://mises.org/story/2401#3)
And take it for granted that the socialist economy uses sound money. So prices are expressed in terms of a standard monetary unit like in a capitalist economy.
Prashanth Perumal:And take it for granted that the socialist economy uses sound money.
But why would we? Sound money is market money. You can't have a centrally planned capital goods structure and market money.
Socialism has always been the enemy of sound money. It's a predictable consequence of the nature of socialism.
Liberty student, I am trying to put Mises' case through the hardest tests. And the criteria is just simple: the Socialist Planner allows everything Capitalist to happen in his economy except private ownership of capital resources. Will he be able to allocate capital resources rationally then?
Prashanth Perumal: New Liberty, thanks for stepping in! Market for consumer goods exists in a centrally planned economy. So prices of consumer goods can be determined by consumers bidding for the concumer products. It is only the capital goods which can't be priced exactly according to Mises.
New Liberty, thanks for stepping in!
Market for consumer goods exists in a centrally planned economy. So prices of consumer goods can be determined by consumers bidding for the concumer products. It is only the capital goods which can't be priced exactly according to Mises.
ok i understand better now, sorry about that.
here is my analysis:
case 1: planner overestimates equilibrium production demand
to sell this much product, the owner has to raise price above equilibrium price. There is not equilibrium demand at this new price, so there will be a surplus. People who would have purchased the product at equilibrium price hold off now that the price is raised.
case 2: planner underestimates equilibrium production demand
since production is lower than equilibrium, it can be offered at a lower price point than equilibrium (and competitors will push it here, if they exist). Now we have a shortage because there is more demand than product.
As you can see, production fixing is just backhanded price fixing as long as private property owners are allowed to set prices themselves.
In reality, fixing of either price or product on a wide scale often turns into fixing of both, as consumers complain about prices and shortages.
trial and error..
yes, lots of trying and as much erring. innefficient waste and inability to get information about where you erred, and what you error was, or to how to try better next time, with less resources, since you wasted so much in an earlier round.....
more copyin and pasting http://mises.org/econcalc/POST.asp
Even if planners observed the money prices which continued to be generated on an unhampered market for consumer goods, or substituted their own unitary scale of values for those of their subject consumers, there would still be no possibility for the central planners to ever know or guess the "opportunity cost" of any social production process. Where actors, in principle, are not in a position to compare the estimated costs and benefits of their decisions, economizing activities, by definition, are ruled out.
A society without monetary calculation, that is, a socialist society, is therefore quite literally a society without an economy. Thus, contrary to what has become the conventional interpretation by friend and foe alike, Mises (pp. 21and 26) was not indulging in rhetorical hyperbole but drily stating a demonstrable conclusion of economic science when he declared in this article: "Without economic calculation there can be no economy. Hence in a socialist state wherein the pursuit of economic calculation is impossible, there can be--in our sense of the term--no economy whatsoever ... Socialism is the abolition of rational economy."
Proof That Socialism Cannot Work
Mises Daily by Dan Mahoney
Consider the decision by the Central Planning Board (CPB) to produce wheat for consumers. Perhaps it knows with certainty how much property consumers will be willing to give in exchange for wheat as opposed to, say, shoes. Based on this knowledge, the CPB must then decide how to provide this wheat and how much of the wheat to produce relative to shoes. How can it make this decision, having decided upon wheat production in general?
then there are the moral problems, like the coercion against consenting capitalist acts....
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
Prashanth Perumal:Liberty student, I am trying to put Mises' case through the hardest tests. And the criteria is just simple: the Socialist Planner allows everything Capitalist to happen in his economy except private ownership of capital resources. Will he be able to allocate capital resources rationally then?
commodity money is a kind of production good. just as a truck is capable of transporting far away shoes to shoes that are on your feet, so too is commodity money able to transform shoes that you dont own into shoes that you do own
Prashanth Perumal:the Socialist Planner allows everything Capitalist to happen in his economy except private ownership of capital resources.
To restrict private ownership of capital resources, is to restrict private ownership of savings. The only way to do so, is to control the money. And so, the money is not market money, but centrally planned. If it was market money, there would be no way to enforce control of savings.
It's mostly academic, but your initial premise is flawed. As Nir explained, commodity money is a capital good.
Prashanth Perumal: Liberty student, I am trying to put Mises' case through the hardest tests. And the criteria is just simple: the Socialist Planner allows everything Capitalist to happen in his economy except private ownership of capital resources. Will he be able to allocate capital resources rationally then?
I think that this article will answer your question fully:
Market Socialism and the Property Problem: DifferentPerspective of the Socialist Calculation Debate
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